INTM209040 - Controlled Foreign Companies: Computation of Chargeable Profits and Creditable Tax

Place of trade

ICTA88/SCH24/PARA1(2)

Although an overseas company is assumed to be United Kingdom resident, there is no corresponding assumption that it carries on any of its activities in the United Kingdom other than those which are in fact carried on in the United Kingdom. The company’s income from a trade carried on wholly outside the United Kingdom will therefore be chargeable under Case V of Schedule D, though the amount of trading income will be computed in accordance with the rules applicable to Case I (ICTA88/S70(2)).

The consequences of assumed residence in the United Kingdom, in relation to income chargeable under Case V, include the following:

• The company is entitled to credit for (that is, can treat as 'creditable tax') foreign taxes paid in respect of its income in accordance with the normal double taxation relief rules (ICTA88/S794).
• A trading company’s chargeable profits will be computed as though the trade commenced at the time when its assumed residence in the United Kingdom began, and ceased when the assumed residence ceased (ICTA88/S337(1)).
• Trading losses will not be eligible for set off against the company’s other income or for carry back under ICTA88/S393A(1), ICTA88/S393A(3)).
• The foreign company is brought within the transfer pricing legislation at ICTA88/SCH28AA.